Hertz Faces Bigger-Than-Expected Loss as Turnaround Costs Rise

Hertz Global Holdings Inc.’s return to the red in the fourth quarter after a single period of profitability signals it still has work to do to pull off its ambitious turnaround plan.

The rental-car company’s adjusted loss of 77 cents per share was worse than the 62 cents analysts had been expecting. Chief Executive Officer Kathryn Marinello said Hertz incurred higher expenses as it upgraded technology, spent more on marketing and continued to overhaul its vehicle fleet to include more of the SUVs that American drivers want.

“In 2018, we expect to see continued progress from our U.S. improvement programs,” Marinello said in a statement. “However, we also will have elevated investments throughout the year as we implement several, major technology conversions. By 2019, we should begin to evolve toward a more competitive earnings profile.”

Marinello’s efforts are being closely watched by Hertz’s largest shareholder Carl Icahn, who owns 35 percent and put her in the job a year ago with a mandate to turn things around. Marinello has been working to transform Hertz by selling off lower-value cars and trying to get better prices at the rental counter. The efforts appeared to begin paying off, with Hertz reporting its first quarterly profit in a year in the third quarter before the fourth-quarter reversal.

Total revenue in the quarter rose 4 percent to $2.1 billion, but pricing at the rental counter fell 1 percent in the U.S. Hertz said its depreciation costs on U.S. vehicles improved 6 percent, a sign that the new models are holding their values better.

Hertz and rival Avis Budget Group Inc. have struggled over the past year amid slumping used-vehicle values and weak car-rental rates. The process of shrinking the size of their fleets to better match supply with demand has undermined profitability, and both companies remain threatened by the rise of car-sharing and ride-hailing businesses such as Uber Technologies Inc.

Hertz shares have tumbled 13 percent this year through Tuesday’s close and were down 3.4 percent at 5:38 p.m. in New York after the end of regular trading.

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